Government Austerity Could Cripple Tech Growth

Government cost cutting drives and slow growth in the private sector could lead to zero-growth in the technology industry in 2011, according to analysts.

In a report released this week, analyst group Gartner warned that, although growth could be up to 3.5 percent next year, there was also a worst case scenario which could see government austerity measures put a complete break on growth in the tech space.

“We’re advising our technology provider clients to prepare business plans for 2011 on the basis of our most-likely scenario for enterprise IT spending growth — 3.5 per cent. However, they should act now to develop contingencies to mitigate the risk of zero growth in 2011, a scenario that carries a lower probability but a much higher potential impact,” said Kenneth Brant, research director at Gartner.

Stalled Growth

According to Gartner, technology makers and service providers should make sure they have sufficient reserves to weather the storm in the event of stalled growth. “The bottom line is that technology providers need to be prepared for the worst case, where commercial IT markets stagnate and governments transition to fiscal austerity programmes,” he said.

In the UK, the government has been putting the squeeze on IT suppliers. As well as ditching the controversial ID cards scheme, and scrapping various tech quangos, the government also scrapped a £80 million software licensing deal with Microsoft for the NHS Connecting for Health (CfH) programme.

However, the government is pushing ahead with an ambitious plan to deploy smart meters to every home and small business in the UK which could cost up to £10 billion to implement and provide a windfall for companies such as BT bidding for a part of the contract.

Technology and service providers should focus on high-growth industry sectors – such at utilities, communications and healthcare – over the next four years as well as analyse larger but slower-growing markets which may help sustain them through the continued slow-down.

Although the analyst is predicting the possibility of stalled growth in 2011, the outlook for the rest of the 2010 is slightly brighter, with IT spending across all industries expected to grow around 2.9 percent and surpass $2.4 trillion (£1.6 trillion). This is slightly up on 2009 when IT spending totalled $2.3 trillion. However, both 2009 and 2010 will be over 5 percent below the total sector spending for 2008, the analyst admits.  “The enterprise IT market will certainly return to growth in 2010, but we now expect it will grow by only 2.9 percent globally, down from 4.1 per cent growth we had forecast earlier this year,” said Brant.

More Optimism

But while Gartner is predicting potentially dire times for the tech industry, other analyst groups are more optimistic. In a 21 July report, Forrester analyst Andrew Bartels said he expects IT spending in the US to reach $753 billion (£493 billion), a 9.9 percent increase over 2009. That is also an increase from the 8.4 percent increase Forrester was predicting in April.

Worldwide, Forrester’s predictions are in line with Gartner’s, that global IT spending will hit about $2.4 trillion (£1.6 trillion), but translates this into a 7.8 percent increase compared to Gartner’s 2.9 percent.